Cashews (thousands of pounds)
Table 5: Output with Specialization
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- Table 6: Consumption with Trade
- Digital Camera Output Wheat Output (bushels)
Table 5: Output with Specialization
Did specialization increase the combined output for the two countries without any increase in resources? If so, by how much? Suppose China and South Korea agree to trade so that in exchange for 1,200 bushels of wheat, the exporter of wheat receives 48 digital cameras. Complete Table 6 below to show each country's consumption bundle after trade. Table 6: Consumption with Trade
Show the consumption points after trade on each country's production possibilities frontier. Label these points "B" for China and "J" for South Korea. Has trade made the two countries better off? Explain your answer. Answer: a.
See graph in part (a) China should specialize in producing digital cameras because it has a lower opportunity cost: 20 bushels of wheat as opposed to South Korea's 30 bushels of wheat. South Korea should specialize in producing wheat because it has a lower opportunity cost: 0.03 units of a digital camera as opposed to China's 0.05 units of a digital camera.
Yes, digital camera output increased by 14 units (from 76 units to 90 units) and wheat output increased by 120 bushels (from 2,880 bushels to 3,000 bushels). See graph in part (a) Yes, trade has enabled the two countries to consume outside their PPFs. Download 235.78 Kb. Share with your friends:
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